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gain, and

which is a corporation, shall be appropriately adjusted in accordance with regulations prescribed by the Secretary or his

delegate. (4) Loss ON SALE OR EXCHANGE OF STOCK HELD LESS THAN 31 DAYS.-11

(A) under subparagraph (B) or (D) of paragraph (3) a shareholder of a regulated investment company is required, with respect to any share, to treat any amount as a long-term capital

(B) such share is held by the taxpayer for less than 31 days, then any loss on the sale or exchange of such share shall, to the extent of the amount described in subparagraph (A) of this paragraph, be treated as loss from the sale or exchange of a capital asset held for more than 6 months. For purposes of this paragraph, the rules of section 246 (C) (3) shall apply in determining whether any share of stock has been held for less than 31 days; except that “30 days” shall be substituted for the number of days specified in subparagraph (B) of section 246 (c) (3).

(c) EARNINGS AND PROFITS.- The earnings and profits of a regulated investment company for any taxable year (but not its accumulated earnings and profits) shall not be reduced by any amount which is not allowable as a deduction in computing its taxable income for such taxable year. For purposes of this subsection, the term "regulated investment company” includes a domestic corporation which is a regulated investment company determined without regard to the requirements of subsection (a). SEC. 853. FOREIGN TAX CREDIT ALLOWED TO SHAREHOLDERS. (a) GENERAL RULE.-A regulated investment company

(1) more than 50 percent of the value (as defined in section 851 (c) (4)) of whose total assets at the close of the taxable

year consists of stock or securities in foreign corporations, and

(2) which meets the requirements of section 852 (a) for the taxmay, for such taxable year, elect the application of this section with respect to income, war profits, and excess profits taxes described in section 901 (b) (1), which are paid by the investment company during such taxable year to foreign countries and possessions of the United States.

(b) EFFECT OF ELECTION.-If the election provided in subsection (a) is effective for a taxable year

(1) the regulated investment company

(A) shall not, with respect to such taxable year, be allowed a deduction under section 164 (a) or a credit under section 901 for taxes to which subsection (a) is applicable, and

(B) shall be allowed as an addition to the dividends paid deduction for such taxable year the amount of such taxes; (2) each shareholder of such investment company shall

(A) include in gross income and treat as paid by him his proportionate share of such taxes, and

(B) treat as gross income from sources within the respective foreign countries and possessions of the United States, for purposes of applying subpart A of part III of subchapter N, the

able year,

sum of his proportionate share of such taxes and the portion of any dividend paid by such investment company which represents income derived from sources within foreign countries or

possessions of the United States. (c) NOTICE TO SHAREHOLDERS.--The amounts to be treated by the shareholder, for purposes of subsection (b) (2), as his proportionate share of

(1) taxes paid to any foreign country or possession of the United States, and

(2) gross income derived from sources within any foreign country or possession of the United States, shall not exceed the amounts so designated by the company in a written notice mailed to its shareholders not later than 30 days after the close of its taxable year.

(d) MANNER OF MAKING ELECTION AND NOTIFYING SHAREHOLDERS.—The election provided in subsection (a) and the notice to shareholders required by subsection (c) shall be made in such manner as the Secretary or his delegate may prescribe by regulations. (e) Cross REFERENCES.

(1) For treatment by shareholders of taxes paid to foreign countries and possessions of the United States, see section 164 (a) and section 901.

(2) For definition of foreign corporation, see section 7701 (a) (5). SEC. 854. LIMITATIONS APPLICABLE TO DIVIDENDS RECEIVED FROM

REGULATED INVESTMENT COMPANY. (a) CAPITAL GAIN DIVIDEND.-For purposes of section 34 (a) (relating to credit for dividends received by individuals), section 116 (relating to an exclusion for dividends received by individuals), and section 243 (relating to deductions for dividends received by corporations), a capital gain dividend (as defined in section 852 (b) (3) received from a regulated investment company shall not be considered as a dividend. (b) Other DIVIDENDS.

(1) GENERAL RULE.—In the case of a dividend received from a regulated investment company (other than a dividend to which subsection (a) applies)

(A) if such investment company meets the requirements of section 852 (a) for the taxable year during which it paid such dividend; and

(B) the aggregate dividends received by such company during such taxable year are less than 75 percent of its gross income, then, in computing the credit under section 34 (a), the exclusion under section 116, and the deduction under section 243, there shall be taken into account only that portion of the dividend which bears the same ratio to the amount of such dividend as the

aggregate dividends received by such company during such taxable year bear to its gross income for such taxable year.

(2) NOTICE TO SHAREHOLDERS.— The amount of any distribution by a regulated investment company which may be taken into account as a dividend for purposes of the credit under section 34, the exclusion under section 116, and the deduction under section 243 shall not exceed the amount so designated by the company in a written notice to its shareholders mailed not later than 30 days after the close of its taxable year.

(3) DEFINITIONS. -For purposes of this subsection

(A) The term "gross income” does not include gain from the sale or other disposition of stock or securities.

(B) The term "aggregate dividends received" includes only dividends received from domestic corporations other than dividends described in section 116 (b) (relating to dividends excluded from gross income). In determining the amount of any dividend for purposes of this subparagraph, the rules provided in section

116 (c) (relating to certain distributions) shall apply. SEC. 855. DIVIDENDS PAID BY REGULATED INVESTMENT COMPANY

AFTER CLOSE OF TAXABLE YEAR. (a) GENERAL RULE.- For purposes of this chapter, if a regulated investment company-.

(1) declares a dividend prior to the time prescribed by law for the filing of its return for a taxable year (including the period of any extension of time granted for filing such return), and

(2) distributes the amount of such dividend to shareholders in the 12-month period following the close of such taxable year and not later than the date of the first regular dividend payment made

after such declaration, the amount so declared and distributed shall, to the extent the company elects in such return in accordance with regulations prescribed by the Secretary or his delegate, be considered as having been paid during such taxable year, except as provided in subsections (b), (c) and (d).

(b) RECEIPT BY SHAREHOLDER.—Amounts to which subsection (a) is applicable shall be treated as received by the shareholder in the taxable year in which the distribution is made.

(c) NOTICE TO SHAREHOLDERS.-In the case of amounts to which subsection (a) is applicable, any notice to shareholders required under this part with respect to such amounts shall be made not later than 30 days after the close of the taxable year in which the distribution is made.

(d) FOREIGN Tax ELECTION.-If an investment company to which section 853 is applicable for the taxable year makes a distribution as provided in subsection (a) of this section, the shareholders shall consider the amounts described in section 853 (b) (2) allocable to such distribution as paid or received, as the case may be, in the taxable year in which the distribution is made.

PART II-REAL ESTATE INVESTMENT TRUSTS

Sec. 856. Definition of real estate investment trust.
Sec, 857. Taxation of real estate investment trusts and their bene-

ficiaries.
Sec. 858. Dividends paid by real estate investment trust after close

of taxable year. SEC. 856. DEFINITION OF REAL ESTATE INVESTMENT TRUST.

(a) IN GENERAL.-For purposes of this subtitle, the term "real estate investment trust” means an unincorporated trust or an unincorporated association

(1) which is managed by one or more trustees;

(2) the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest; (3) which (but for the provisions of this part) would be taxable as a domestic corporation;

(4) which does not hold any property primarily for sale to customers in the ordinary course of its trade or business;

(5) the beneficial ownership of which is held by 100 or more persons;

(6) which would not be a personal holding company (as defined in section 542) if all of its gross income constituted personal holding company income (as defined in section 543); and

(7) which meets the requirements of subsection (c). (b) DETERMINATION OF STATUS.—The conditions described in paragraphs (1) to (4), inclusive, of subsection (a) must be met during the entire taxable year, and the condition described in paragraph (5) must exist during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months.

(c) LIMITATIONS.-A trust or association shall not be considered a real estate investment trust for any taxable year unless

(1) it files with its return for the taxable year an election to be a real estate investment trust or has made such election for a previous taxable year which began after December 31, 1960; (2) at least 90 percent of its gross income is derived from

(A) dividends;
(B) interest;
(C) rents from real property;

(D) gain from the sale or other disposition of stock, securities, and real property (including interests in real property and interests in mortgages on real property); and

(E) abatements and refunds of taxes on real property;
(3) at least 75 percent of its gross income is derived from-
(A) rents from real property;

(B) interest on obligations secured by mortgages on real property or on interests in real property;

(C) gain from the sale or other disposition of real property (including interests in real property and interests in mortgages on real property);

(D) dividends or other distributions on, and gain from the sale or other disposition of, transferable shares (or transferable certificates of beneficial interest) in other real estate investment trusts which meet the requirements of this part; and

(E) abatements and refunds of taxes on real property; (4) less than 30 percent of its gross income is derived from the sale or other disposition of

(A) stock or securities held for less than 6 months; and

(B) real property (including interests in real property) not compulsorily or involuntarily converted within the meaning of section 1033, held for less than 4 years; and (5) at the close of each quarter of the taxable year

(A) at least 75 percent of the value of its total assets is represented by real estate assets, cash and cash items (including receivables), and Government securities; and

(B) not more than 25 percent of the value of its total assets is represented by securities (other than those includible under subparagraph (A)) for purposes of this calculation limited in respect of any one issuer to an amount not greater in value than 5 percent of the value of the total assets of the trust and to not more than

10 percent of the outstanding voting securities of such issuer. A real estate investment trust which meets the requirements of this paragraph at the close of any quarter shall not lose its status as a real estate investment trust because of a discrepancy during a subsequent quarter between the value of its various investments and such requirements unless such discrepancy exists immediately after the acquisition of any security or other property and is wholly or partly the result of such acquisition. A real estate investment trust which does not meet such requirements at the close of any quarter by reason of a discrepancy existing immediately after the acquisition of any security or other property which is wholly or partly the result of such acquisition during such quarter shall not lose its status for such quarter as a real estate investment trust if such discrepancy is eliminated within 30 days after the close of such quarter and in such cases it shall be considered to have met such requirements at the close of such quarter for purposes of applying the preceding sentence. (6) For purposes of this part

(A) The term "value” means, with respect to securities for which market quotations are readily available, the market value of such securities; and with respect to other securities and assets, fair value as determined in good faith by the trustees, except that in the case of securities of real estate investment trusts such fair value shall not exceed market value or asset value, whichever is higher.

(B) The term "real estate assets” means real property (including interests in real property and interests in mortgages on real property) and shares (or transferable certificates of beneficial interest) in other real estate investment trusts which meet the requirements of this part.

(C) The term “interests in real property” includes fee ownership and co-ownership of land or improvements thereon and leaseholds of land or improvements thereon, but does not include mineral, oil, or gas royalty interests.

(D) All other terms shall have the same meaning as when used in the Investment Company Act of 1940, as amended. (d) RENTS FROM REAL PROPERTY DEFINED.-For purposes of paragraphs (2) and (3) of subsection (c), the term "rents from real property' includes rents from interests in real property but does not include

(1) any amount received or accrued, directly or indirectly, with respect to any real property, if the determination of such amount depends in whole or in part on the income or profits derived by any person from such property (except that any amount so received or accrued shall not be excluded from the term "rents from real property" solely by reason of being based on a fixed percentage or percentages of receipts or sales);

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